by T. GormanPosted on Posted in SECActions

Admissions appear to be a focus of recent SEC settlements. Last week the agency required a political intelligence firm to admit the facts in its OIP as part of the settlement of an action alleging inadequate compliance systems. This week the SEC obtained admissions through a parallel U.K. settlement in connection with an action that was based on FCPA type allegations. In the Matter of Standard Bank PLC, Adm. Proc. File No. 3-16973 (November 30, 2015).

Standard Bank is the London-based international investment bank subsidiary of Standard Bank Group Ltd. of South Africa. It is regulated by the Financial Conduct Authority and the Prudential Regulatory Authority in the U.K. Its affiliate, Stanbic Bank of Tanzania Limited, is a member of the Standard Bank Group of South Africa. It provides various banking products and services in Tanzania.

The Government of Tanzania tried to raise funds for infrastructure projects in the international bond market from 2011 through early 2013. It failed. Standard and Stanbic proposed to raise capital for the projects through a private placement of securities in the U.S. under Regulation S. In February 2012 the firms understood the offering would proceed. Before the appropriate documents were executed, however, the Minister of Finance was replaced.

Over the next several months Standard and Stanbic sought to ensure that the financing would move forward. Stanbic hired the son of the new Minister of Finance. In August 2012 a draft of the Proposal Letter was prepared which listed a fee of 2.4%, in contrast to the original deal which called for a 1.4% fee split between Standard and Stanbic. The additional fee was to be paid to a party called Local Partner, later identified as Enterprise Growth Market Advisors Limited. Enterprise or EGMA is a private Tanzania firm that supports companies raising funds through the capital markets. Stanbic was to pay 1% to Enterprise.

Standard was negligent in not taking “steps to understand what role EGMA would play in the transaction in return for its $6 million fee . . .” according to the Order. Standard could not pay Enterprise without conducting know your customer processes. Accordingly Stanbic would conduct the procedures. Standard did, however, take an active role in drafting the Collaboration Agreement between Stanbic and Enterprise.

In November the Government of Tanzania, through the Minister of Finance, executed a Mandate Letter for the deal with Standard and Stanbic. The two firms would serve as Lead Managers. Enterprise was not mentioned.

On February 27, 2013 the Government of Tanzania issued its floating-rate amortizing, unrated, unlisted, sovereign bonds through a Regulation S private placement. In accord with the transaction documents the gross proceeds of $600 million were transferred to the government’s account in New York. The 2.4% fee was transferred to Stanbic which deposited 1% in an account for Enterprise. No disclosure of that fee was made. The Order alleges violations of Securities Act Section 17(a)(2).

Standard cooperated with the U.K. authorities and the SEC. Following communications from employees regarding cash withdrawals by Enterprise, Standard self-reported to the U.K. Serious Fraud Office, undertook a comprehensive internal investigation and cooperated with the Commission.

To resolve the matter Respondent consented to the entry of a cease and desist order based on the Section cited in the Order. It also agreed to admit the facts in the action brought by the Serious Frauds Office (Standard Bank Plc., No. U20150854, Southwark Crown Court, U.K.) and to pay disgorgement of $8.4 million. That obligation will be satisfied by paying that sum in the U.K. action, or to the extent not paid there, in the SEC action. In addition, the firm will pay a penalty of $4.2 million. Standard also settled with the SFO, entering into the U.K.’s first DPA and paying a fine of $33 million.

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by T. GormanPosted on Posted in SECActions

When the Commission adopted its policy of requiring admissions to settle certain enforcement actions no bright line test was created. Rather, an array of facts were to be assessed on an individual, case-by-case basis. Generally, the factors focused on if the violations were egregious and of wide-spread interest. Now, however, the SEC has required that a political intelligence firm with inadequate compliance procedures, but where no other actual violation occurred, make admissions of fact as a condition of settlement. The case at least suggests the standard may be evolving. In the Matter of Marwood Group Research, LLC, Adm. Proc. File No. 3-16970 (November 24 2015).

Marwood is a political intelligence firm. It is registered with the Commission as a broker dealer and the State of New York as an investment adviser. Initially its work centered on the healthcare area and was tied to the Center for Medicare and Medicaid Services or CMS and the Food and Drug Administration or FDA.

Generally, the firm conducts and writes reports and updates regarding regulatory and legislative issues. The firm markets its analysis to clients in the financial sector focusing on events that had the potential to impact the share price of a public company’s stock.

Account representatives communicated the firm’s research to clients. They also participated in drafting the research reports. In some instances phone calls with government employees were arranged.

The firm had a policy which prohibited insider trading. Its written policies and procedures concerning the use and dissemination of inside information provided for a review process over the preparation and publication of its regulatory and legislative research notes. Those policies required approval by a licensed supervisory principal and submission of the review material through the compliance department. Employees were instructed that if they had doubts the compliance department should be consulted. Employees were also prohibited from using material non-public information if they obtained it.

The Order alleges two instances in which the firm is alleged to have failed to enforce its existing policies. The first concerned the drug Provenge, an immunotherapy approved by the FDA in 2010 for metastatic prostate cancer. For certain medical items and services CMS may make a National Coverage Determination or NCD to determine the criteria for coverage for all Medicare beneficiaries. That process leads to a National Coverage Analysis or NCA. A change can impact Medicare coverage.

When this process was initiated for Provenge some clients sought Marwood’s views on the reason the NCA had been initiated and the likely outcome. CMS staff were governed by a confidentiality policy although they were permitted to speak to the public on select topics. A Marwood employee who was a former employee of CMS and had worked in the group responsible for NCAs contacted a person at the agency he knew. From that contact he learned information which provided “color” to the events and which he cautioned should be kept confidential. Specifically, he understood that there was concern for off-label use and a further belief that CMS would cover on-label use. The information was sent to two managers. No steps were taken to present the information to the CCO. On July 8, 2010 Marwood published a research note predicting CMS’s continued coverage and reimbursement of Provenge’s on-label usages.

The second drug was Bydureon, an injectable diabetes drug. The sponsoring company submitted a new drug application which was later revised. In response to the refilling the FDA set a new statutory deadline for a decision.

Some clients sought Marwood’s view on the likely outcome of the decision. A firm consultant who was a former high ranking FDA official had a lengthy conversation with Marwood staff during which he discussed information obtained from contacts at the agency. In part that information revealed that the FDA had continued concerns and there was a debate between safety and reviewers. The consultant specified issued he believed were of concern to the agency. No steps were taken to quarantine the information. Marwood informed clients about the intense debate regarding the drug within the agency.

While Marwood’s analysts interacted with government employees who were likely to be in possession of material nonpublic information the firm did not have written policies or procedures that required the CCO be provided with sufficient information to assess the situation. To the contrary the firm relied largely on line employees. This resulted in violations of Exchange Act Section 15(g) and Advisers Act Section 204A, according to the Order.

To resolve the proceeding the firm agreed to implement a series of undertakings including the retention of a consultant. The firm also admitted to the facts detailed in the Order. Marwood consented to the entry of a cease and desist order. It will also pay a penalty of $375,000.

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